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Why are companies suddenly offering bank accounts?

A few years ago, only banks offered banking services. Today, fintechs nationwide are entering the arena. What's changed?

ahon | Jul 17, 2019

It seems lately that almost everyone is rushing to offer bank accounts to consumers. Fintechs such as Acorns, MoneyLion and many others, as well as nonbanks like Uber, are looking to or have already offered customers basic checking and savings accounts. But why?

Why are companies offering bank accounts?

Bank accounts have long been the purview of traditional financial institutions. But in recent years the rise of digital services, the increasing adoption of technologies such as cloud computing and APIs, and the emergence of banking-as-service platforms have made offering a bank account a relatively simpler and more powerful opportunity for almost any company. So many have done just that.

Banking is the hub of your user’s financial life

Companies are rightly realizing that the bank account is the center of every consumer’s life. It’s not just another financial product like a personal loan or an investment account, but rather the central hub that connects every aspect of the consumer’s financial life. P2P payments services, merchant apps, health savings accounts and any other “ancillary” financial account we could list are all intrinsically connected to the customer’s main bank account. It’s where the money flows in every payday and what it flows out of to service loans, make investments, pay bills and buy things.

That’s why so many innovative non-banks and fintechs have begun offering their own unique, white-label bank accounts: it puts them at the center of the customer’s financial life and gives them the ability to serve more of their users’ needs than ever before.

At the end of the day, every transaction, every financial goal, is centered around that primary bank account.

Engagement drives retention

When you control that main bank account, you have a very sticky relationship with that customer. According to a joint study done by Bankrate and MONEY, the average U.S. adult has used the same primary checking account for 16 years. With deep engagement driving customer retention and value, it’s no surprise that companies are looking to bank accounts as a way to serve the user’s needs while increasing CLTV. Moreover, with the bank account connected to the rest of the consumer’s life, it opens up the potential to modernize other aspects of the user’s life. Connected into virtually every other financial mechanism that people touch, it could be said that the simple primary bank account underpins the entire U.S. financial ecosystem.

How are modern fintechs using banking?

Roboadvisors

That’s why so many nonbanks are setting out to offer them. They are realizing that it’s not about offering yet another standard bank account to a customer, but about getting that central relationship with them and using that to improve other aspects of their lives. It’s why, for example, robo-advisors are starting to offer bank accounts. In this case, robo-advisory firms can help their customers move from managing just their investments to holistically managing their finances. With access to their cash flows, robo-advisors can make more nuanced recommendations about where and how much to invest, rather than waiting for that person to transfer money into the investing account from another bank account. With in-house savings solutions, they can provide an FDIC-insured option to earn a better return on short term cash. Going even further, they can automate the recommendations to take action for the user and help them automatically build a better financial life.

Lenders

Or take online lenders: those that have begun to offer basic checking accounts to customers can streamline the lending process and make it much better for clients. With the integration of underlying banking infrastructure, loans are not only approved immediatelyーas many already are nowーbut also funded almost immediately as well, making it possible to go from opening an application to spending proceeds in minutes. This removes a major friction point that loans face today and makes them a more realistic solution for people with short term liquidity needs (vs. a more traditional source of instant cash – payday loans – that come with astronomically high interest). Through seemingly simple, small changes, companies can reinvent the lending process, grow their product offering, and serve more of their customer’s needs.

So what’s next in the evolution of banking?

Platforms such as Cambr have made offering bank accounts much more accessible for nonbanks; there’s no need to invest heavily in new tech infrastructure or to go through years of regulatory approval. With highly efficient digital onboarding, real-time fraud monitoring, robust compliance engines and other critical requirements already taken care of, along with automated statements and tax forms, nearly anyone can offer a white-labeled bank account without having to go through the lengthy and onerous process of actually becoming a bank.

The barrier to entry has been significantly reduced, if not completely eroded. Instead of just living at the edges of their customers’ financial lives, companies can be at the center, serving them much more efficiently by offering them a bank account of their very own.